What is business intelligence?

Business intelligence, or BI, is an umbrella term that

refers to a variety of software applications used to
analyze an organization’s raw data. BI as a discipline
is made up of several related activities, including
data mining, online analytical processing, querying
and reporting.
Companies use BI to improve decision making, cut
costs and identify new business opportunities. BI is
more than just corporate reporting and more than a
set of tools to coax data out of enterprise systems.
CIOs use BI to identify inefficient business
processes that are ripe for re-engineering.
With today’s BI tools, business folks can jump in
and start analyzing data themselves, rather than
wait for IT to run complex reports.
Thisdemocratization of information access helps
users back up—with hard numbers—business
decisions that would otherwise be based only on gut
feelings and anecdotes.
Although BI holds great promise, implementations
can be dogged by technical and cultural challenges.
Executives have to ensure that the data feeding BI
applications is clean and consistent so that users
trust it.
What kind of companies use BI systems?
Restaurant chains such as Hardee’s, Wendy’s, Ruby
Tuesday and T.G.I. Friday’s are heavy users of BI
software. They use BI to make strategic decisions,
such as what new products to add to their menus,
which dishes to remove and which underperforming
stores to close. They also use BI for tactical matters
such as renegotiating contracts with food suppliers
and identifying opportunities to improve inefficient
processes. Because restaurant chains are so
operations-driven, and because BI is so central to
helping them run their businesses, they are among
the elite group of companies across all industries
that are actually getting real value from these
systems.
One crucial component of BI—business analytics—is
quietly essential to the success of companies in a
wide range of industries, and more famously
essential to the success of professional sports teams
such as the Boston Red Sox, Oakland A’s and New
England Patriots.
With an analytical approach, the Patriots managed
to win the Super Bowl three times in four years. The
team uses data and analytical models extensively,
both on and off the field. In-depth analytics help the
team select players and stay below the NFL salary
cap. Patriots coaches and players are renowned for
their extensive study of game film and statistics, and
Coach Bill Belichick reads articles by academic
economists on statistical probabilities of football
outcomes. Off the field, the team uses detailed
analytics to assess and improve the "total fan
experience." At every home game, for example, 20 to
25 people have specific assignments to make
quantitative measurements of the stadium food,
parking, personnel, bathroom cleanliness and other
factors.
In retail, Wal-Mart uses vast amounts of data and
category analysis to dominate the industry. Harrah’s
has changed the basis of competition in gaming
from building megacasinos to analytics around
customer loyalty and service. Amazon and Yahoo
aren't just e-commerce sites; they are extremely
analytical and follow a "test and learn" approach to
business changes. Capital One runs more than
30,000 experiments a year to identify desirable
customers and price credit card offers.

What are some potential problems?

User resistance is one big barrier to BI success;
others include having to winnow through
voluminous amounts of irrelevant data andpoor
data quality.
The key to getting accurate insights from BI systems
is standard data. Data is the most fundamental
component of any BI endeavor. It's the building
blocks for insight. Companies have to get their data
stores and data warehouses in good working order
before they can begin extracting and acting on
insights. If not, they'll be operating based on flawed
information.
Another potential pitfall is BI tools themselves.
Though the tools are more scalable and user friendly
than they used to be, the core of BI is still reporting
rather than process management, although that's
slowly beginning to change. Be careful not
to confusebusiness intelligence with business
analytics.
A third impediment to using BI to transform
business processes is that most companies don't
understand their business processes well enough to
determine how to improve them. And companies
need to be careful about the processes they choose.
If the process does not have a direct impact on
revenue or the business isn't behind standardizing
the process across the company, the entire BI effort
could disintegrate. Companies need to understand
all the activities that make up a particular business
process, how information and data flow across
various processes, how data is passed between
business users, and how people use it to execute
their particular part of the process. And they need to
understand all this before they start a BI project, if
they hope to improve how people do their jobs.
What are some benefits of business
intelligence efforts?
A broad range of applications for BI has helped
companies rack up impressive ROI figures. Business
intelligence has been used to identify cost-cutting
ideas, uncover business opportunities, roll ERP data
into accessible reports, react quickly to retail
demand and optimize prices.
Besides making data accessible, BI software can give
companies more leverage during negotiations by
making it easier to quantify the value of
relationships with suppliers and customers.
Within the walls of the enterprise, there are plenty
of opportunities to save money by optimizing
business processes and focusing decisions. BI yields
significant ROI when it sheds light on business
bloopers. For example, employees of the city of
Albuquerque used BI software to identify
opportunities to cut cell phone usage, overtime and
other operating expenses, saving the city $2 million
during three years. Likewise, with the help of BI
tools, Toyota realized it had been double-paying its
shippers to the tune of $812,000 in 2000.
Companies that use BI to uncover flawed business
processes are in a much better position to
successfully compete than companies that use BI
merely to monitor what's happening.